Kampfire, Inc., a very successful manufacturer of camping equipment, is considering going public next month to raise funds to help finance the company’s future growth. The financial manager of Kampfire has approached the investment banking firm at which you work seeking help with its decision. Your boss asked you to explain the nature of the U.S. financial markets and the process of issuing equity to the financial manager. To help with this task, your boss has asked you to answer the following questions in explaining the U.S. financial system to the financial manager:
a) Securities can be traded on physical exchanges or in the over-the-counter market. Define each of these markets, and describe how stocks are traded in each one.
b) Kampfire estimates that it needs $25 million to support its expected growth. In addition, it is estimated that Kampfire will incur $284,000 in other expenses related to the IPO. If your analysis indicates that Kampfire’s stock can be sold for $8.00 per share, how many shares must be issued to net the company the $25 million it needs.